Undoubtedly the semiconductor industry is a key factor underlying the US-China trade war. However, when we try to understand the strength and progress of China's semiconductor industry, we discover that all the figures seem connected and yet cannot be compared directly. The production value of the wafer manufacturing industry should not be combined with that of IC design, as the two sectors have completely different business structures. Reading the semiconductor industry's figures is like viewing a country's budget plan, both filled with hidden, curious and unanswerable parts.
Basically, the semiconductor industry can be categorized into four major areas: wafer manufacturing, IC design, packaging and testing, and upstream equipment and materials. China has been aggressively pushing developments in all four fields, but what the country lacks is also quite obvious.
Figures from major research firms were all different, but were not too far from each other. IC Insights estimates that worldwide IC demand was US$430.8 billion in 2018 and will rise to US$571.4 billion in 2023. Meanwhile, China imported US$312 billion worth of semiconductor products in 2018, and its trade deficit in semiconductors amounted to US$227.4 billion in the year. If China's local IC manufacturing industry's production value of US$23.7 billion is included, China's demand for semiconductor totaled US$251.1 billion in 2018, accounting for 58.3% of the worldwide semiconductor consumption.
However, the amount should still be divided in terms of usages: consumption by the local semiconductor industries and markets, and by production for foreign clients. Domestic consumption accounted for around 30% of worldwide demand from 2013-2016, but the percentage already increased to 36% in 2018 or an amount of US$155 billion due to the aggressive expansions of China's smartphone vendors globally, according to IC Insights. The four major China-based smartphone vendors, Huawei, Lenovo, Xiaomi and BBK were all in the top-10 rankings in terms of semiconductor purchasing in 2018, together spending as much as US$60 billion.
Semiconductor demand mainly coming from Taiwan and non-China ICT players including Foxconn, Pegatron, Wistron, Quanta Computer, Inventec, Sony, Samsung and LG contributed a total of US$96.1 billion. That means, of China's US$155 billion semiconductor demand in 2018, 62% came from local players and 38% from non-China players.
(Note: This is part of a series of articles by Digitimes president Colley Hwang on the latest developments of the IT industry in the wake of the US-China trade war.)